What is a thematic fund?
Thematic funds, as you may have guessed, are funds created around a specific trend or theme, like technology or eco-living. These types of funds are operated by an investment manager, who is responsible for investing pooled funds in various companies to turn a profit.
What are the benefits?
As mentioned previously, there are many different types of investment funds, but a lot of investors see thematic funds as the most valuable. There are many reasons to invest in a thematic fund over any other type of fund, including:
- Beating the market. Selecting the right theme at the right time can bring a significant return on investment, even when the wider market is depreciating.
- Greater portfolio diversification. Themes are fairly broad, allowing for greater diversification and risk mitigation.
- A smaller collection of investments to research. By narrowing down stock availability to a single theme, the number of companies to research significantly reduces.
How do thematic funds work?
Thematic funds offer a much broader portfolio than similar funds like sectoral, as they can invest beyond the confines of a single sector. The fund manager researches the entire compatible market and chooses where to invest funds. Investors have the option of investing in themes through several different channels including ETFs (exchange-traded-funds), funds, or individual stocks.
Thematic funds always focus on a certain area of the market, and they can easily suit an investor’s interests. Popular themes include agriculture, innovative healthcare, e-commerce growth, the gig economy, clean energy, and technology. As these funds spread across different sectors, they’re much more diverse and favourable to investors.
What are the risks?
Investing always comes with a level of risk, as nobody knows with certainty what the future holds. However, some investments hold a higher level of risk than others. When it comes to thematic funds, investors have to have a relatively high-risk appetite, as the scope of the portfolio is limited by the theme. Therefore, if stocks related to that theme crash, investors face serious losses. However, this comes with a flip side that means large profits if the tide turns the right way.
The risk associated with a thematic fund is different to that of traditional investment funds, as the entire market is available to many different fund types. However, there is some crossover, in that the investment manager can make poor choices.
What is the difference between a thematic fund and a traditional investment fund?
Thematic funds are different to traditional mutual funds because they’re always focused on a certain trend or theme, which can pay off handsomely under the right circumstances. Although thematic funds and traditional funds are similar, in that they’re made possible by pooled investments and are run by a fund manager, there are many subtle differences including:
- Thematic funds are locked to specific trends or themes.
- Traditional investment funds invest in anything from cash assets to real estate.
- Thematic funds are more suitable for investors with a high-risk appetite.
Investing is a great way to prepare for the future and meet financial goals, and there are countless ways for people to invest. Even within the investment fund category, there’s a lot of scope. However, for investors that believe in a certain trend or theme, thematic funds can pay off well.
